It's surprising that this topic is not getting the majority of the attention in the financial media. Oh, what topic is that?
The Bank of Japan ending Yield Curve Control (YCC) and Negative Interest Rate Policy (NIRP).
Here are a couple of recent posts on this platform:
Building on Bitcoin Picks Up Momentum
Most may not be aware, but the Bank of Japan (BOJ) actually IS the Japanese bond market at this time. They own more than half of outstanding JGBs and have been running YCC for many years. To think this shift away is a nothing burger is a grave mistake.
Here is some more mainstream financial media talking about the erosion of the Yen Carry Trade:
So where are we now? The BOJ did in fact "end YCC" (for now) and raised the benchmark rate. Guess what happened? Well, first let's recap. The BOJ said it would end NIRP, end YCC, and stop buying ETFs. One might think the Yen would soar.
The Yen has actually shrugged its shoulders a bit before . . . . . . . FALLING to new lows.
But wait, there's more. China is not too thrilled with their economic situation, and they can literally face mass civil unrest if things unravel further. They have choices to make. One choice, similar to back in 2015, is to aggressively devalue the Yuan.
Let's take a look at the below courtesy of BofA Global Strategy:
China and Japan are both major exporters. They need "competitive currencies" (translation, weaker currencies) to compete as much as possible for exports. As shown above the last time this area was breached the PBOC did in fact step in and knock down the Yuan.
Which brings us back to Bitcoin. In summary:
- BOJ ends NIRP and YCC and says it won't buy ETFs anymore
- The Yen. . . . . . . . falls further
-Yen carry trade under assault (maybe not a catastrophe yet at these yields) with the prospect of arbing and keeping bid under UST to come under pressure if BOJ continues
- Yen Carry Trade has been supporting U.S. Treasuries for many years now
- China likely to devalue the Yuan, note recent action*
All of this is rocket fuel for Bitcoin.
Grab your popcorn.
Perhaps a few things to look at with one eye open while sleeping:
- If the BOJ can't find buyers for JGB, then what? (BOJ owns more than 60% of the market now)
- Why has the Fed been telling banks "hey going to the Discount Window ain't so bad, don't be nervous to do it"
- Why is the SEC positioning the Primary Dealers such that they will be major forced buyers of UST?
